Oil Futures Ease Early Monday

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude on the Intercontinental Exchange eased in early trading Monday on sentiment the market has ample supply to meet demand while world oil consumption is expected to slow in the first quarter following expected record high demand during the current quarter.

Concern global economic growth is slowing, highlighted by signs the U.S.-China trade dispute is having a negative effect on China’s economy while major equity indices continue to selloff, have prompted speculators in oil futures to liquidate long positions in October. West Texas Intermediate and Brent crude had reached four-year highs in early trading on worry over U.S. sanctions on Iranian oil exports, which take effect next week, would leave the world short supply just as demand spikes.

In October, forecasts for global oil demand were dialed down slightly, with forecasters highlighting headwinds for global economic growth while the high oil price was seen causing demand destruction, namely in emerging economies where a strengthening U.S. dollar adds to crude costs. In early trading, the U.S. dollar is holding below Friday’s 10-week high.

The International Energy Agency expects global oil demand to average 100.2 million bpd in the current fourth quarter, when world consumption peaks, before slowing to 98.9 million bpd in the first quarter.

Futures traders are already veering to 2019, with the ICE December Brent contract set to expire Wednesday (10/31) afternoon while the forward curve for West Texas Intermediate moved out of backwardation this month and is in contango through May 2019.

The expected startup of the Sunrise Pipeline by Plains All American in early November is also weighing on the front end of WTI’s forward curve, with the pipeline adding as much as 500,000 bpd of capacity with connections from Midland, Texas to the storage tank farm at Cushing, Oklahoma, the delivery point for the NYMEX WTI futures contract. The pipeline would ease takeaway constraints from the Permian basin, where production growth has slowed. The added capacity is seen accelerating the restocking at Cushing, where the Energy Information Administration reported stocks at a 30.0 million bbl four-month high as of Oct. 19.

The United States will begin to sanction companies buying Iranian crude oil next week, with Iranian oil exports expected to fall sharply as a result. Analysts are mixed on their view, with some seeing Iranian oil exports would drop another 500,000 bpd to 700,000 bpd from September. Iran’s oil exports are estimated to have fallen 800,000 bpd from April to September.

There are conflicting reports on wire services, with some showing expected strong compliance with the U.S. sanctions. Reports out Monday suggest India, China and Turkey will look to skirt the sanctions.

Offsetting worry over supply is a production jump by Saudi Arabia, which is producing 10.7 million bpd now, up 200,000 bpd from September, and set to lift their production rate to 11.0 million bpd. The sharp increase in Saudi production comes as the kingdom looks to diminish the fallout from what they have acknowledged was the premediated murder of a prominent Saudi dissident and journalist at their consulate in Istanbul, Turkey. On Saturday, U.S. Defense Secretary Jim Mattis said the killing of Jamal Khashoggi undermines stability in the Middle East.

In early trading, NYMEX December WTI futures were down about $0.45 near $67.10 bbl. ICE December Brent was $0.40 lower near $77.25 bbl with the January delivery near parity with the expiring contract.

NYMEX November ULSD futures, which expire Wednesday alongside the November RBOB contract, was down about 2.0 cents near $2.2835 gallon. December delivery was moving in lockstep with the expiring contract.

NYMEX November RBOB futures were up 0.5 cents at $1.8200 gallon, holding a roughly 30-point premium to the December contract.

Brian L. Milne can be reached at brian.milne@dtn.com

(BE)

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